FRANKFURT (Reuters) - German carmaker Volkswagen (VOWG.DE) raised the prospect of job cuts as a way to slash its manufacturing costs and compete in a global market that shows no mercy to inefficient players.

Warning that the future of carmaking in western Europe was at risk, Chief Executive Bernd Pischetsrieder said on Wednesday VW must be able to export vehicles at a profit even if the dollar remains weak versus the euro and car prices stay low or keep falling.

"If we are not in a position, whether it's for a fully assembled car or for components, to deliver to diverse markets from Europe then it will be the end of a lot of manufacturing activities, not only for Volkswagen and our suppliers but for our whole industry," he told an analyst meeting in London.

For example, he said, if Europe's biggest carmaker cannot make money by assembling a Passat car at its Emden plant in Germany and exporting it to the United States, then such plants had no long-term future.

"The key problem of the Volkswagen group is that on today's cost structure and possibly even (given) our performance in the subsidiaries we are not able to make a profit in the States nor to sustain previous levels of profitability in China," he said.

The gloomy message helped send Volkswagen's shares down 2.2 percent to 43.52 euros by 1232 GMT, leading decliners among European peers (^SXAP - news), even though VW stuck to its financial targets in the meeting, which was broadcast on the Internet.

CHALLENGES LOOM

"We do expect an improved (2005) operating and pretax profit," Chief Financial Officer Hans Dieter Poetsch said, repeating what VW had said in late July.

"Before too much fantasy sets in, you should be aware of the very real challenges we still have confronting us in the second half of the year," he added.

"The examples are very obvious: the situation in the United States, the situation in China and the significant challenges with regard to the Volkswagen brand, which still is operating in a very unsatisfying situation."

Dogged by a strong euro and weak U.S. sales, Volkswagen will lose money in North America again this year and is unlikely to break even next year unless conditions unexpectedly improve, Pischetsrieder said.

Profits from its once-lucrative Chinese joint ventures have also evaporated amid intense competition, while the core Volkswagen brand made a first-half operating loss.

VW aims to hit an annual pretax profit of around 5.1 billion euros ($6.24 billion) in 2008 thanks to a planned 4 billion euro gain as part of its "ForMotion Plus" efficiency program.

Volkswagen and its main union struck a landmark labor deal in November that freezes pay for staff in western Germany until early 2007 in return for job security until the end of 2011.

Celebrity manager Wolfgang Bernhard, brought in to turn around the flagship Volkswagen brand group, has been pushing as well for shift changes at VW's main Wolfsburg plant that would save the company millions by ending night shift bonuses.

But the talks ran aground when workers balked at ending their four-day week, leaving open whether VW will decide to build a new compact sport utility vehicle at the site.

"We need an improvement on the manufacturing costs not only in Wolfsburg and not only on this car," Pischetsrieder said.

"When I say personnel costs this obviously could consist of two elements: either less per head, or less heads, or both."